What is a Mortgagee Sale?

A mortgagee sale is something most home-buyers don’t consider when taking out a home loan. However, if you start to miss your repayments, it could become a reality. So what exactly is a mortgagee sale? Canstar explains.

What is a mortgagee sale?

People often use the terms “home loans” and “mortgages” interchangeably, but there’s a subtle difference. A mortgage is essentially a guarantee on a property. When a bank lends money, it requires an assurance that it’ll get its money back. So, the borrower is required to pledge their property as security, by granting the bank a mortgage on the home. If the borrower pays off the loan, the mortgage is lifted. But if the borrower defaults on the loan and stops repayments, the bank can sell the property to get its money back. The process is known as a mortgagee sale.

What happens if I miss a repayment?

If you start missing payments, your bank will likely reach out to you. Typically, they’ll try to find a solution with you, especially if you’ve only missed a payment or two, rather than immediately taking legal action or selling your property.

It’s important to be upfront and honest with your bank about your situation. They may ask you to fill out a statement of position, which outlines your income and expenses. This helps the bank understand if you can manage a repayment plan. A financial advisor can assist you with this process and even communicate with your bank on your behalf.

Related article: Free Financial Advice in NZ: Where to Find it

What happens if I continue to miss repayments?

If you’re unable to resolve missed loan payments with your bank, or if the issue persists, the bank may send you a letter of demand. This marks the beginning of the formal debt recovery process. The letter will specify the amount of overdue payments and a deadline for payment.

Once again, it’s crucial to communicate with your bank. If you can pay the amount by the deadline, inform your bank. If not, notify them as soon as possible and propose a payment amount you can manage. There’s still a chance you could work out a repayment plan that satisfies the bank.

If you can’t pay the full amount and an agreement can’t be reached with the bank, seek independent advice. A financial advisor or lawyer can explore alternatives, such as refinancing with another bank or selling your house independently before the situation escalates to a mortgagee sale.

If you fail to pay the amount demanded by the bank, they have the right to issue a default notice. You’ll likely receive this notice in person. The notice will outline the specifics of the default and specify the amount you need to pay by a certain date. This deadline will typically be at least 20 working days from when the notice is served.

Related article: What is Non-Bank Mortgage Lending in New Zealand?

What is the mortgagee sale process?

If you are unable to meet the repayment deadline, the bank/lender has the right to sell your property. However, the bank is obliged to get the best price reasonably obtainable at the time of sale. This is typically managed through:

  • A registered valuation of the property
  • Appointing a real estate agent to market the property for a period of (usually) four weeks
  • Properly considering any offers made

The bank does not have to wait for the best time to sell the property, or improve the property before mortgagee sale. A mortgagee sale for a price less than the property’s current market value isn’t usually considered breach of the bank’s obligation.

It’s important to remember that, as the owner, you remain liable for the debt to the bank, as well as all costs associated with the property (such as rates, insurance and maintenance) until the property is sold and settlement has taken place.

Related article: How to Refinance a Mortgage

Will a mortgagee sale cover all my debt?

A mortgagee sale typically aims to cover the outstanding debt owed to the lender (the mortgagee) from the sale proceeds of the property. However, if the sale price is not enough to repay the entire bank debt, you are liable for the outstanding balance. If no agreement can be reached with the bank about repaying the balance, the bank can take recovery action that can ultimately result in your bankruptcy.

Related article: What is Debt Consolidation?

What happens if the house is being rented?

If a house is being rented, the bank must inform the tenants when it takes over as landlord. The tenant then pays their rent to the bank. Once the bank has possession, it has the same rights and responsibilities as any landlord.

Whoever buys the house during a mortgagee sale becomes the new landlord from the date of settlement. They inherit the tenancy agreement, along with all the terms and conditions.

In a mortgagee sale, the bank or the buyer who acquires the property at auction has unique powers regarding fixed-term leases. They can terminate the lease by providing notice as if it were a month-to-month agreement. Similarly, the tenant also has the option to terminate the fixed-term lease as if it were a month-to-month arrangement.

Related article: Rental Bonds: How They Work in New Zealand

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About the author of this page

This report was written by Canstar Content Producer, Caitlin Bingham. Caitlin is an experienced writer whose passion for creativity led her to study communication and journalism. She began her career freelancing as a content writer, before joining the Canstar team.

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